Basic Principles

of Strategic Management
Review for Final –
Business 189
Stuff that’s worth
remembering
 Distinctive competence
 Very important strengths, unique
to the particular firm, that create
competitive advantage
• Built from resources and capabilities
 Resource = possessions of the firm
• Tangible – factories
• Intangible – brand names
 Capability = skills at putting resources to
productive use
 A competence = a bundle of
resources and capabilities that does
something fundamental and
hard to imitate
 A competence is said to be
distinctive when it gives or has
clear potential to give the firm
competitive advantage
 Strategies – actions and plans to
attain one or more business goals
 Levels of strategy
 Corporate level
• What businesses should we be in?
• What are our basic attitudes to them?
 Business level
• Strategy for a unit that operates
an entire business
 Functional level
• Strategy for a unit that performs a
particular function for a business unit
(or for the organization as a whole)
 Business people spend most time
at business & functional levels
 The critical goal is usually
competitive advantage
• Higher returns than others in their
industry
 The ultimate goal is sustained
competitive advantage
• For this, hard-to-imitate competencies
are critical
 Business model
 Management’s theory of how it will attain
competitive advantage
• Or, especially when considering corporate-level
strategy, simply high profits
 The basic model


Good business High profits –

model Distinctive
Good strategies Higher return
competences
than
you can defend
competitors
Deliberate vs. emergent strategy
 Emergent strategy = actions that happen
without planning

 Deliberate strategy can be considered in

terms of
• Strategy formulation
• Strategy implementation
 Strategic Intent
 Big goal
 Widely shared at all levels in the
organization
 Pursued for a long period
• with both deliberate and emergent
strategies
 Internal analysis
Value to
 Value creation Consumer
customer

surplus
Price
Profit
margin

Cost,
including
cost of
capital
 Value chain
 The distinctive competence can be
anywhere on the value chain
• In primary activities or support activities
 Barriers to imitation
• Very diverse
• But capabilities that are hard to explain
are typically hard to imitate
 Inertia
 Icarus paradox
 External analysis
 Industry – firm and its close
competitors
• Sector
• Segment
 Stages in industry evolution
 5-forces analysis
 Globalization
 The competitive advantages of
national industries
• Factor endowments
• Demand conditions
• Related and supporting industries
• Rivalry
 Measuring success
 Return on invested capital
 Return on equity
 Those are the central ideas
 The rest of the course examined
issues in
• Functional level strategy
• Business-level strategy
• Technology strategy
• Global strategy
• Corporate strategy
• Managed change
• Corporate governance
• Ethics
 Issues in functional-level strategy
 Economies of scale
 The experience curve –
a combination of
• Economies of scale and
• Learning effects
 Issues in business-level strategy
 Product/service differentiation
 Market segmentation
 Generic strategies
• Cost leadership
• Differentiation
• Focus
 Focused cost leadership
 Focused differentiation
 Pursuing both cost leadership and
differentiation
• Difficulties (“stuck in the middle”)
• Possible benefits
 Strategic groups
 Game theory – look forward / reason
back
 Issues in technology industries
 Standards
 Setting standards
 Strategies for winning format wars
• Killer applications
• Razor and blade
• Cooperation with competitors
 Costs in high tech industries
 First-mover advantages,
disadvantages
 Disruptive technology – why existing
firms neglect new technology that
produces cheap products
 Global strategies
 Basic choices of strategies
• International strategy – transferring
existing competences abroad
• Multidomestic strategy – responsiveness
everywhere
• Global strategy – cost reductions
through centralization
• Transnational strategy – seeking
simultaneous cost reductions,
competency transfer, responsiveness
 I did not prepare slides on corporate
strategy because I thought slides could
not easily summarize it.
 However, lecture notes on corporate
strategy are on the web site –
• Click on Business 189, then Lecture Notes,
then Section 18: Corporate Strategy 1.
 Note the diagrams I planned to put on the Board are
at the end of the file
 Section 19: Corporate Strategy 2 may also be
helpful.
 A basic change process
 Unfreeze
 Movement
 Refreeze
 Key issues in corporate
governance
 Stakeholders
• Internal
• External
 Stockholders (the owners)
 The agency problem
• Information assymetry
 Corporate governance
• Annual meeting
• Board of Directors
• Stock options
• Takeover threats
 Ethical decision – one a reasonable
stakeholder can support
 Unethical decision – one you’d prefer
to hide